The Changing Face of M&A

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1 The Changing Face of M&A

2 The Changing Face of M&A 2 Overview In today s unsteady macroeconomic climate, M&A trends are not easily characterized or predicted. The total dollar amount of transactions has not yet approached its 2007 high, and the first two quarters of 2013 have been tepid. However, significant deals have been executed recently, such as Verizon s buyout of Vodaphone - the biggest deal in a decade. There is reason for measured optimism. In the unsettled economic climate, companies with the strongest M&A performance are distinguished by their effective strategies and unique toolset. Top players consistently employ a few strategies: a broad view of due diligence, a hands-on approach to the post-deal phase, a dedicated integration team and program management office, and an emphasis on rapid stabilization immediately following a merger or acquisition. significant deals have been executed recently, such as Verizon s buyout of Vodaphone - the biggest deal in a decade These best-practice strategies require a software platform that can keep up with the fast pace and complexity of unfolding deals. The latest technology must be utilized in order to share and protect sensitive documents, and provide a real-time secure workspace where deals can close quickly and efficiently.

3 The Changing Face of M&A 3 A Turbulent Marketplace The global M&A market s quarter-by-quarter swings are volatile, therefore the short-term future can be difficult to predict. Recent M&A activity reflected an ongoing lack in confidence among dealmakers, stemming from the U.S. credit crisis nearly 5 years ago. Factors that slowed momentum in 2012 included confusion over the U.S. fiscal cliff legislation, the presidential election, the sovereign debt crisis in the E.U., and economic instability in China and the Middle East. Thomson Reuters reported M&A activity in 2012 was down by 3.8% compared to Late in 2012, however, there was an uptick of activity with the $8.3 billion acquisition of NYSE Euronext by InterContinental Exchange, as well as GETCO LLC s purchase of Knight Capital Group for $1.4 billion. Thomson Reuters reported M&A activity in 2012 was down by 3.8% compared to 2011 At the outset of 2013, a cautious sense of optimism was noticeable as certain high-growth markets continued to offer appealing options for dealmakers. Q was marked by little sense of urgency which drove the buyer s market. Corporations reflected the uncertain global economic climate by scaling back capital expenditures, and apprehension still prevails as pending tax code changes are set in place. Even though corporate cash balances are healthy and there are good terms available for financing acquisitions, it s likely that the feeling of caution in the executive suite will continue to be the limiting factor in M&A activity. It had been widely predicted that 2013 would be the year when five years worth of decline in the transaction market would be reversed, but this remains to be seen. However, there

4 The Changing Face of M&A 4 is reason to believe that the M&A markets will continue to strengthen throughout the remainder of Verizon s $130 billion buyout of Vodaphone changes the landscape, as it marked the largest deal in a decade. Current Trends Sectors In 2013, the sectors that look promising include telecom and technology, retail and consumer products, real estate, and transportation. Sectors showing sinking numbers include financial services (due to regulatory pressure), and extractive industries such as mining, oil, and gas. mobile apps were responsible for nearly 60 deals in the first quarter of 2013 Up until the Verizon deal in Q3, SaaS had brought in the most value in The entire technology field was boosted by the $24.9 billion deal to take Dell private in September Other major deal drivers include e-payment processing, healthcare information solutions, social networking, smart mobility, and big

5 The Changing Face of M&A 5 data analytics. Furthermore, mobile apps were responsible for nearly 60 deals in the first quarter of Many of these apps enable social-network-based reviews and advice for users. Regions North America continues to be the most popular deal destination. Other active locations include (from highest to lowest deal activity): Western Europe, China, Brazil and Asia (outside of China and India). Cross-border deal volume has been falling steadily, showing an 8% decline in the first quarter of 2013, compared to one year earlier. The aggregate value of cross-border deals in the U.S. dropped 71% from the previous year to the lowest level since Finally, new energy is visible in Turkey, Malaysia, UAE and Poland as the volume of deals slowly increases. Deal Size Although a few blockbuster deals continue to crop up, KPMG research suggests that the most active size for deals will continue to be the middle market. 79% of the recent transactions examined were valued at $250 million or less. These smaller deals are easier to finance and close in the current economic climate. Strategies for a Changing Landscape KPMG LLP articulated some key M&A strategies used by 221 highly performing organizations worldwide. Comparisons between companies with highly successful M&A track records and those with less success reveals certain practices which reliably contribute to profitable outcomes. These best practices include: Use a Wide-Angle Lens for Due Diligence Effective deal-makers are willing to spend time and resources on extensive due diligence to get a broad, in-depth view. This means looking at the issues in a business which happen beyond the accounting department. Successful companies don t take a companies with exceptionally good M&A track records conduct interviews with an average of 50 different sources per transaction

6 The Changing Face of M&A 6 cookie-cutter approach to their due diligence process; instead, they tap into a variety of data sources, including the stakeholders of the target company outside the executive suite. They also interview experts in that particular business area such as customers, suppliers, industry analysts, and business partners. This type of in-depth advanced research allows for far more precise valuations, while ruling out undesirable targets earlier in the process. KPMG s research shows that companies with exceptionally good M&A track records conduct interviews with an average of 50 different sources per transaction. Keep a Hands-On Approach During the Post-Deal phase having members of the newly integrated business is also correlated with superior outcomes Driving corporate development teams to take on additional responsibility in getting the new business up and running has been shown to pay off. Such teams can also offer coherent tracking data, monitor cost-savings and evaluate the impact of new resource allocation formats. The M&A team is able to provide objective information through a full postmortem analysis, carried across metrics such as speed of closing a deal, post-deal satisfaction of stakeholders and management, whether the pre-determined purchase price was achieved, and so on. This type of neutral analytical transparency facilitates an atmosphere of high-quality operational integrity. Establish a dedicated integration team Giving the internal team full ability to focus on the merger integration effort is another strategy utilized by the highest performing companies. Whether through staffing shifts or new

7 The Changing Face of M&A 7 hires, team members should be free to put their entire focus on integration matters. Furthermore, having members of the integration team become part of the management of the newly integrated business is also correlated with superior outcomes. Managing a transition in this way makes use of an ongoing knowledge base and the new business is able to run far more efficiently. The integration manager must have a strong tolerance for ambiguity, a gift for analysis and diplomacy, and high-level problem-solving abilities. One effective approach to finding the right person is to create a flexible program through which business unit managers are given temporary rotations in the corporate development team. Use a Program Management Office Managing the post-merger integration (PMI) process requires centralized operational planning, since changes in one department of the newly merged business will inevitably bring in changes in other departments and systems. Staffing for this PMI needs to put people in place who are independent, influential and experienced; otherwise, the resistance to change in the company will cause hardship. Rapid Stabilization in post-close phase The downside of not proactively stabilizing post-merger can be a loss of up to 15% of the annual revenue base. Employees are far more likely to flee if they feel their security is threatened by instability, and companies that do not put resources into this type of stabilization may see 20% of their workforce leave within the year after the merger. during the due diligence process, it s crucial to have effective coordination between parties Managing the change responsibly means making critical decisions as early as possible and maintaining open lines of communication throughout the combined business. It s also a good idea to set some short-term goals, so that when these are achieved there will be a sense of movement and progress in the new company. Additionally, information needs to be shared across the range of stakeholders, from customers to business partners to line staff and managers.

8 The Changing Face of M&A 8 Leveraging Technology Given the need to move quickly and thoroughly in today s market, implementing the proper technology solution can help keep a deal organized and moving forward. The right solution can streamline the process by contributing far more than simple document storage. Key benefits include: Speed: In a complex transaction, speed is based on the ability to make data available to the right people at the right time. Through a secure deal management platform like CapLinked, any device can instantly become a workspace. Files that exist securely in the cloud are immediately available through permission portals to every party in an M&A transaction. A real-time notification feed supplies continuous updates on recent deal activity. Productivity: During the due diligence process, it s crucial to have effective coordination between parties. Workflow is improved by having the ability to create custom permission settings for all members of the deal, with multiple permission groups inside a workspace. Risk Mitigation: Risk is decreased when detailed real-time reports reveal who is engaged with the deal and who has viewed each document. It s also an effective practice to keep the Legal and Accounting Departments in the loop on a continuous basis, and to make use of an efficient archiving system in order to provide an audit trail. Providing access to the right people is an integral element of an effective M&A platform, though it is equally important to restrict access to unauthorized parties. Permissions need to be closely managed so that the provision and restriction of access is handled properly. Accessibility: In an ever growing bring-your-own-device workplace, mobile solutions are becoming an integral aspect of the modern office. An M&A platform needs to be designed to work across devices, from computers to tablets to smartphones, and designed with these devices specifically in mind. It s important that solutions do not use Java or Flash, as legacy systems (including Intralinks and Merrill Datasite) that rely on Java and Flash do not work on mobile devices.

9 The Changing Face of M&A 9 Conclusion Looking ahead, there is cause for optimism in the M&A market. Consumer confidence will rebound as U.S. fiscal and tax policy solidify, and as recovery continues on the European debt crisis. Recent strong stock market performance suggests investors are thinking positively, and M&A growth will continue to be driven by technological innovation cloud/saas and smart mobility platforms. CapLinked is a platform that offers the technological tools which make it possible to pursue M&A in an uncertain market, providing companies with the ability to use best industry practices throughout the entire transaction cycle. Connect with us today for a personal demo by calling (888) or by reaching us at sales@caplinked.com. References: